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Why do movies suck? Because you're too old, probably. Author Edward Jay Epstein explains why in his fascinating new book The Hollywood Economist, and the future looks bleak for audiences over 25 or so years of age.

Here's how I thought Hollywood worked before I read Epstein's book: Producers pulled together a good script and actors, made a film for, let's say, $100 million. If it was a hit, by the time theater ticket sales reached $300 million or so, the studio was well in the black. And since the U.S. population spans all age groups, the studios would green-light movies for each bracket. Independent films appealing to niche demographics filled in gaps missed by the major studios.

I was so wrong.

Here's the reality, according to Epstein. Movies are made for teenagers. The movies that are green-lighted are those that offer the opportunity for sale of "DVDs, TV shows, games and toys...". Independent film financing has collapsed. Studios rarely make money on a film. Although the industry may not be putting out films to your taste, you're still paying tax dollars to support them. And Wal-Mart is one reason skin is so rare in major studio releases.
Who's in the audience?
Teens go to movies, so movies are made for teens, which means non-teens don't enjoy them as much, so fewer non-teens go to movies, so more movies are made for teens...You can see a vicious cycle here. In fact, according to Epstein, last year more than 70% of the audience members for widely-release features were under 21.

So why are teens so lucky? Epstein points out that they have three important attributes:

They are easy to reach by advertising. The studios pay a fortune to advertise a movie -- an average of $35.9 million in 2007 -- trying to reach each consumer eight times before the film's release. Teens "predictably cluster around the same TV shows", meaning ad dollars spent there pay off. Older people spread their viewing across many more channels, so reaching a boomer audience with similar saturation is much more expensive.

They pound down the snacks, and snacks are profit. According to Epstein, in 1997 Hollywood Theaters sold $11 million of popcorn and reaped a profit of $8 million.

Boomers, on the other hand, are unlikely to buy an Iron Man game or a jacket worn by a character in a Twilight movie.
Gazing into the near future
So what can we expect? Epstein explains the Midas formula, the one the studios have found brings in the big bucks. Unless these tactic starts to fail, expect more and more blockbuster releases to hit these marks:

Based on adolescent entertainments; cartoons, comic books, young adult novels, theme parks and the like.

Feature child or adolescent protagonists

Fairy-tale plots such as the special boy/girl, or the underdog wins.

No overt sexual content

Potential for toy and game licensing

Stylized conflict (This makes me think of Matrix)

A happy ending

CGI or other animation for action scenes

Relatively unknown stars

And I'd add one more: Technological advance as a hook (Imax, 3D, HD)

Think about Avatar; only item number 2 doesn't really apply. Shrek? Again, all but #2. Harry Potter? 10 for 10.

Now compare this list against AARP The Magazine's 2009 Best Films for Grownups.Frost/Nixon? 0 for 10. Doubt, with Meryl Streep? Zero. The Curious Case of Benjamin Button? Two, for special effects.

And Avatar is only making things worse. I asked Epstein via e-mail about this film's effect on the market, and he responded "Avatar has sucked money out of smaller films by staying in theaters. It has also increased the expectation -- and appetite -- for special effects films on a global scale. As a result, Hollywood studios are re-making their older films in 3D at a cost of about $10 million per film, and with another $40-$50 million for prints and marketing. The upshot: there are fewer slots for original films."

Teens are not directly to blame for the lack of mature fare, though. Much of the problem comes from the industry's current financial model. In 1929, Epstein explains that 80% of Americans went to the movies weekly. In 2008, this figure was 9%. Blame your television.

I was surprised, however, to learn that only 20% of a film's gross earnings comes from the box office. 80% comes from overseas rights, DVD sales, HBO, television, games, toys, commercial tie-ins, product placements, digital download sales, and the like. This is bad news for films like No Country For Old Men; would you buy a Javier Bardem action figure? (Actually, I might. It would look great on my dashboard).

Nonetheless, the occasional film for adults still gets made, and I asked Epstein why we still see films like Frost/Nixon being made. He wrote "Many of the people who go to Westward Hollywood [the annual movie business convention] are interested in more than making money (or they would have become investment bankers or money managers). They enjoy making intelligent films, even if they are not profitable. Unfortunately, they also have the studios immense overhead...".

"So most of their production is sequels and comic book films which play well in Asia, and can be used to leverage foreign and TV output deals. But they still have room to make a few films such as Frost/Nixon, especially if it involves a big name director like Ron Howard. And by pre-selling foreign territories and putting it in slots in their output deals with Pay-TV, they do not lose money on them. But they use up opportunities, so such films are few and far between."

Indie films
But independent film makers will fill in the void, you think? Epstein has some bad news about this. He explains that the way that indies have been funding films is by first securing written promises from foreign distributors that, if the film is made, they will pay a certain amount for the foreign rights. These promises are used to secure the loans that fund the film production.

Two things have changed recently, though. With a drop in DVD sales thanks to streaming video and movie piracy, and the recession-depleted budgets of client television networks, foreign distributors are no longer willing to make such generous promises for indie films. And during the recession banks are much less willing to fund any but the most surefire projects. Since indies play on a much smaller number of screens, even a hit isn't going to bring in big numbers.

I asked Epstein if he saw any new financial model that can resuscitate the independent film industry. He responded "Yes. I think Indie films have to defect from the studio scenario of releasing movies in a series of well-spaced windows -- first theaters, then (5 months later) DVD, then pay-per-view, pay TV, and finally cable and free TV. This makes sense for studios,since they release movies on 5,000 screens, and can afford separate ad campaigns for the DVD. But it makes no sense for the indies, where movies may only play in 3 or 4 cities, and the buzz vanishes by the time of the DVD release. Instead, Indies should release movies simultaneously in theaters and in video shops and TV -- so people in locations in which the movie is unavailable can buy the DVD. Mark Cuban (Landmark theaters) has had some success with this model with the movie Two Loves."
Who's making money?
Epstein goes into great detail about how money flows through a production, but the key point he makes is that the studio doesn't often make money on a movie, even a hit. Not directly. But the distributors make money, and the studios own the distributors. The stars make money, the production companies make money, the theater owners make money, but by the time all of these have dipped into the revenue stream, there's nothing left for those who were promised a cut of the net, such as the schmuck personal investor.

Luckily for the film industry, it has states and even countries willing to give film makers money to make movies there. The people funding this largesse is you, if you live in one of the 40 states that give tax breaks to movie makers. According to Epstein, the makers of Benjamin Button spent $160 million on the production, but the state of Louisiana kicked in $27,117,737 worth of tax credits to make the film there; le bon ton roulet indeed. New Mexico is offering a 25% production cost rebate, so expect to see a lot of Santa Fe in upcoming films.

And if you've ever wondered why U.S. street scenes on television look so much like Canada, that's because the Canadian government is very generous to the industry, giving tax credits equivalent to 16% of Canadian labor costs and 20% on digital effects.

What happened to sex?
There was a time when nudity was almost obligatory in major films. Now, even James Bond's arm candy is modestly attired, and Epstein points out that, of the top 25 highest grossing films since 2000, none have had any sex-related nudity.
There are two reasons for this, according to Epstein.

Secondary sales of films carrying a NC-17 rating are difficult. Remembering that only 20% of revenue comes from the box office, it's no surprise that the last major release carrying this rating was Showgirls back in 1995.

The other reason is the DVD market, and Wal-Mart in particular. The megacompany sells nearly one in every four DVDs, and doesn't cotton to risqué content.

Epstein's book offers many other interesting tidbits, such as

The reason theaters limit seating to 299 is that the Americans with Disabilities Act requires any theater with 300 or more seats to provide wheelchair access to every row.

The reason that few if any good prints of some older films exist is that the studios recycled them for the silver in the film.

Each print of a film costs around $1,500; for a 3,000 theater release, that's $4.5 million. So expect the industry to move to digital very quickly.

Since The Hollywood Economist is a compilation of various articles Epstein wrote for magazines, some of the topics are covered more than once. Nonetheless, the chance to peek behind the curtain to learn what's going on backstage in the movie industry makes this book well worth the read.